RE 1 - First Level Regulatory Examination - …

1 COMPLIANCE MONITORING SYSTEMS CCRE 1: First Level Regulatory Examination : applicants And/Or Key Individuals In Category I, II, IIA and III Alan Holton December 2009 The First Level Regulatory Examination will be developed taking into account that applicants and key individuals are required to understand the FAIS Act, the FIC Act, and the subordinate legislation to the FAIS Act that applies to the category or subcategory for which they are authorised, approved or appointed Page 2 of 13 RE 1 First Level Regulatory Examination applicants AND/OR KEY INDIVIDUALS IN CATEGORY I, II, IIA AND III (1) The First Level Regulatory Examination will be developed taking into account that applicants and key individuals are required to understand the FAIS Act, the FIC Act, and the subordinate legislation to the FAIS Act that applies to the category or subcategory they are authorised, approved or appointed for; (2) applicants and key individuals are required to complete a Regulatory Examination that addresses the legal obligation and liabilities that they are accountable for in terms of the FAIS Act; (3) This legislative based Examination will be known as the First Level Regulatory Examination ; (4) The qualifying criteria listed here will be used by the Examination bodies to set the First Level Regulatory Examination , and serve as the criteria against which qualifications will be evaluated for inclusion on the list of recognised qualifications; (5) All applicants and key individuals performing financial services in relation to category I, II, IIA and III are required to complete the First Level Regulatory Examination , based on the following qualifying criteria: Task 1 Describe the role of the key individual in terms of the FAIS Act.

2 Knowledge Criteria Skill Criteria Describe the roles and responsibilities of key individuals as defined in the FAIS Act. Explain the requirements for licensing by the FSB for the role of the key individual. Describe what the key individual s management responsibility entails regarding the regulated functions of the FSP. Perform the necessary management and oversight functions regarding their functioning within the FSP. Describe what the honesty and integrity requirements are for a key individual. Check whether a potential/current key individual meets the requirements regarding honesty and integrity. Explain what the implications are for the key individual if a key individual s personal situation changes and he/she is no longer fit and proper. (Refers to honesty and integrity requirement.) Take the appropriate action where a potential/current key individual does not meet the requirements regarding honesty and integrity. Explain what the implications are for the FSP if a key individual s personal situation changes and he/she is no longer fit and proper.

3 (Refers to honesty and integrity requirement.) Explain the competence/qualification requirements that a key individual needs to meet. Check, where applicable, whether a potential/current key individual meets the competence/qualification requirements. Explain the experience requirements that the key individual must meet. Check, where applicable, whether a potential key individual meets the experience requirements. Page 3 of 13 Explain what management responsibilities should be carried out by a key individual. Oversee the implementation of processes and controls to ensure the sufficient management and oversight of the financial services rendered. Explain when an individual can commence acting as a key individual. Task 2 Describe the role of the representative in terms of the FAIS Act. Knowledge Criteria Skill Criteria Describe the roles and responsibilities of representatives as defined in the FAIS Act. Explain the requirements for licensing by the FSB for the role of the representative.

4 Explain when an individual is obliged to be registered as a representative in terms of FAIS. Explain the fit and proper requirements that apply to the representatives. Discuss the purpose of the register of representatives. Verify that the FSP maintains a register of representatives in accordance to the FAIS requirements. Explain the qualification requirements for representatives. Task 3 Manage and oversee the appointment of representatives. Knowledge Criteria Skill Criteria Describe the Fit and Proper requirements that apply to representatives in terms of the legislation. Verify that the necessary HR processes are developed or amended to enable the FSP to check, at recruitment stage, whether a potential representative meets at least the entry Level Fit and Proper requirements. Explain what recruitment and appointment procedures have to be implemented when appointing representatives. Page 4 of 13 Task 4 Manage the rendering of services under supervision. Knowledge Criteria Skill Criteria Explain when representatives can act under supervision.

5 Confirm that there are enough role players (key individuals/ representatives) that meet the criteria and can act as supervisors. Describe the supervision requirements that must be in place when representatives act under supervision. Ensure that the supervisors understand their roles and have the capacity to carry this out. Verify that there are levels of supervision in place to oversee the representatives. Perform the necessary management and oversight functions regarding the representatives that are overseen by you. Explain the disclosure requirements that representatives are responsible for. Check that disclosures are adequate to enable client s ability to make an informed decision. Task 5 Manage and oversee the ongoing development/ employment of representatives. Knowledge Criteria Skill Criteria Describe the implications of Section 8 and Section 13 of the Act, and what this means in terms of training and development of representatives. Verify that the processes are documented to ensure that records are kept of training programmes attended, including continued educational training for your key individuals and representatives.

6 Implement and maintain a documented process to ensure that all representatives are trained, competent and will provide financial services on behalf of the FSP efficiently, honestly and fairly. Check that there are training processes in place to provide representatives with information and skills regarding: Processes Systems Products Services Compliance requirements Regulatory requirements when rendering financial services. Describe the implications if a representative does not meet all the requirements in terms of Fit and Proper by the relevant date. Check that the necessary HR processes are developed/amended to enable the FSP to check at regular intervals, whether a representative is making the required progress regarding reaching all the Fit and Proper requirements as it applies to his/her appointment conditions. Page 5 of 13 Task 6 Debar representatives that have been found to act fraudulently, or committed any other act that gives rise to debarment.

7 Knowledge Criteria Skill Criteria Discuss the purpose of debarment. Check that the employment or mandatory agreement with representatives includes the reasons for possible debarment. Describe when the debarment of a representative should take place. Confirm that all role players in the FSP are informed about: The reasons why debarment would be considered, The process that would be followed in such instances, Any recourse a representative may have. Discuss how the debarment of a representative should take place. Verify that the FSP s HR and disciplinary code has been amended to provide for debarment procedures. Explain the actions a representative may take that would give rise to debarment procedures. Describe the ramifications for a FSP if it debars a representative unfairly. Explain the processes that should be followed before a representative is debarred. Verify that there are internal processes and procedures that are followed when a representative is debarred.

8 Explain the process and timeframe to notify the Registrar that a representative has been debarred. Verify that there are internal processes and procedures that are followed to inform the Registrar when a representative is debarred. Check that the compliance officer performs monitoring procedures on all cases where representatives are debarred. Page 6 of 13 Task 7 Awareness of the Regulatory environment in which the FSP functions Knowledge Criteria Skill Criteria Describe the Act and requirements thereof. Explain in general which department and/or contact person(s) at the Regulator s office should be contacted with regards to the maintenance of a FSP license. Interact with the regulator when and where required. Explain what format of communication with the Regulator is required. Explain what processes are required to remain updated with regards to other legislation, amendments, updates and requirements published that will affect the FSP. Describe the implication for a FSP if the Registrar publishes a notice regarding an undesirable business practice.

9 Check that there are processes in place to check whether the Registrar has published notices regarding undesirable business practices . Verify that there are processes in place to ensure that the business is informed about undesirable business practices and that they cease any such actions. Task 8 Awareness of the specific obligations in terms of the relevant Code of Conduct and other subordinate legislation Knowledge Criteria Skill Criteria Explain the obligations and requirements when client funds or premiums are received. Confirm that there is a separate bank account with a registered bank into which client monies are deposited. Describe the requirements regarding the development, amendments, approval and use of specimen mandates. Verify that all specimen mandates are approved by the FSB before it is utilised. Describe the obligations and requirements regarding the use of nominee companies. Check that any nominee companies used have been approved by the FSB in terms of the nominee policy.

10 Confirm that the reports in terms of the nominee company are provided timeously to the FSB. Explain the importance of disclosures. Check that disclosures are adequate to enable client s ability to make an informed decision. Discuss how to ensure transparency and manage conflict of interests. Distinguish between actions regarded as advice and intermediary services in terms of the Act. Page 7 of 13 Describe the concept of ethical conduct in the financial services environment. Discuss the impact and requirements regarding the disclosure rules on the FSP. Apply the requirements of the General Code of Conduct. Discuss the effect of disclosure requirements on commission is explained with reference to line of business and specific product/policy. Describe the disclosure requirements regarding the FSP, product suppliers, product suppliers acting as FSPs and financial services. Apply disclosure requirements in terms of financial products. Explain the manner in which complaints are to be handled by the industry with reference to the FAIS General Code of Conduct.